The Value Chain of Programmatic Advertising

Internet advertising revenue is expected to surpass TV advertising and will grow at a CAGR of 11.1 percent to reach $260.4 billion by 2020. The advent of advertising technology is leading to the development of programmatic media buying and has played a central role in this growth.

Prior to internet advertising, advertisers engaged media agencies who would engage with publishers directly. Buying ad space involved negotiations, insertion orders, manual tracking and long waiting periods. While the number of publishers was once only a few hundred, as internet advertising matured, the number of publishers grew into the millions. Buying of media could no longer be done in person in such a complex eco system.

Ad Networks were created to help advertisers categorize ad inventory and allow for extended reach to numerous publishers at once. Ad networks also tracked and optimized each campaign across multiple sites.

As ad networks grew in number, advertisers and publishers not only spent more time selecting relevant ad networks but also frequently ran the risk of buying inventory from the same site numerous times.

Automated (programmatic) selling and buying of ad inventory based on specific criteria through real time bidding (RTB) was the solution, and thus an Ad Exchange was created. Ad exchange allowed publishers to connect to relevant ad networks to more efficiently increase ad inventory sales. It also gave the advertisers transparency and control over their ad placements.

In order to further aid advertisers and publishers in simplifying the process of buying ad inventory, tools like Demand Side Platform (DSP) and Supply Side Platform (SSP) were developed.

DSPs are used by advertisers to not only engage with multiple ad exchanges simultaneously, but also to create targeting criteria, aggregate user specific data, manage bids, do retargeting, optimize ad campaigns (in real-time) and most importantly bid for ad inventories at the lowest possible price. In order to efficiently match the audience in real time, DSPs make use of Data Management Platforms (DMP) whose primary role is to create target audiences based on an in depth analysis of first party and third party data obtained either from publishers or purchased from third party data vendors.

On the other side of this, SSPs enable publishers to sell ad inventory at the highest possible price by providing access to multiple ad exchanges, ad networks, and DSPs all at once, increasing the range of potential buyers.

Previously, media agencies who bought ad inventories traditionally analysed 10 to 20 ad buying opportunities a week.  Today, with the help of the programmatic value chain, automated buyers of online advertising analyse millions of ad buying opportunities per second.

The emergence of advertising technology has not only simplified online advertising but has also paved the way for immense opportunities in the overall advertising arena. Going forward, advertisers and publishers could use ad technology to reach a more specific subsets of audiences in traditional mediums like TV and radio, rather than just relying on ratings for specific shows or channels.    

According to IBA Research, by 2020, more than 30 billion devices will be wirelessly connected to the “internet of things,” creating limitless opportunities to connect with consumers and gather insights for better analysis of target consumers.

As a response, the advertising industry needs to leverage the current programmatic value chain and develop an even more agile and proactive eco system in order to capitalize on the availability of such tremendous data.